Report: Health Insurance Rate Watch Project

Comments on PacificSource Health Plans' proposal to increase individual health insurance rates

Released by: OSPIRG Foundation

Executive Summary   

Most of PacificSource Health Plan’s customer base of more than 12,000 Oregonians with individual health insurance plans will see double-digit rate hikes if the premium rate hike proposed by PacificSource goes forward.

Had the rate been approved as initially filed, PacificSource’s members would have seen increases of 15.9% on average, ranging as high as 24%. However, shortly after filing, the insurer submitted new information to DCBS indicating that the initial rate proposal had incorporated a major error, and proposed a new, lower average rate increase of 10.8%, ranging as high as 18.7%.

The insurer attributed the error to a miscommunication that resulted in inaccurate contracting assumptions being used in the original rate filing. In other words, the personnel in charge of projecting the medical costs the insurer will face in the future were not on the same page with the personnel in charge of negotiating reimbursement rates with providers, which is the single biggest contributor to increasing health care costs.

PacificSource’s customers would benefit from lower premiums. However, a 10.8% increase would still represent one of the highest increases in Oregon’s individual market if approved, so the revised proposal deserves close scrutiny. While we do not suggest that comparable errors remain in the revised proposal, the fact that the initially requested rates appear to have been unjustified highlights the urgency of scrutinizing all the factors and procedures used in calculating health insurance rates.

The main reasons given for the proposed increase include the insurer’s projection that medical costs will increase by 4.7%, that prescription drug costs will increase by 12.3%, and that the worsening health status of its customers will drive up costs by 8.3% in the coming year.

After analysis of PacificSource’s initial filing, the revision to the filing, and the supplemental information provided, we conclude that the insurer has not provided sufficient information to justify their proposed rate increase.

Key Findings:

  • PacificSource did not adjust its cost projections to reflect a reduction in “bad debt” from the Affordable Care Act’s expansion of coverage. With over 400,000 Oregonians newly signed up for coverage in 2014, rates of uncompensated care are beginning to decline. This benefit should be passed along to consumers in the form of lower rates.
  • PacificSource’s projection of a 12.3% trend for prescription drug costs is unusually high and has not been supported by sufficient data. PacificSource’s prescription drug trend projection is higher than many of their competitors, and higher than widely-cited independent projections of marketwide trends. It is also nearly twice as large as PacificSource’s 6.8% pharmacy trend projection from last year.
  • PacificSource’s projection of an 8.3% increase due to the worsening health status of their customers is insufficiently supported. Next year, many market experts expect that the mix of customers enrolling in health coverage will be younger and healthier than those who signed up for 2014, which may bring down costs. Especially in a context in which some insurers are projecting decreases in costs due to this factor, PacificSource does not provide enough evidence to support their projection.
  • PacificSource includes a 4.99% increase to its calculations for a “Market Risk Adjustment.”  However, adequate justification for this value was not provided.  
  • PacificSource adds in a cost for reinsurance, in addition to that provided by federal and state programs, that is not adequately documented.  PacificSource has not shown that this additional reinsurance is appropriate or reasonably priced.
  • When it comes to reducing costs and improving the quality of care, it is not clear that PacificSource is doing all it can. New health care quality, cost and utilization metrics submitted for informational purposes show that PacificSource’s utilization and costs for inpatient and specialty care are high in comparison to most of their competitors. In addition, its performance on measures of mental health follow-up care and development screening are below statewide benchmarks. Further inquiry should be made into the causes of these metrics to ensure PacificSource is doing everything possible to cut waste and improve quality of care.

Before deciding to approve, deny or modify this rate request, we urge the Insurance Division to scrutinize the issues raised here, require PacificSource to provide all documentation necessary to evaluate their proposal, and to implement a concrete, achievable plan to contain costs for Oregon individuals and families.

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